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Defence experts described the improvements as “long overdue”, following decades of underfunding and three cancelled upgrades of Warrior stretching back more than 10 years.

The Ministry of Defence plans to award the contract to Lockheed Martin UK – a move which will generate and maintain up to 600 jobs at sites across Britain.

Announcing the deal at the US defence company’s facility in Ampthill, Bedfordshire, the Prime Minister said: “We made difficult decisions in the strategic spending review so we could spend money on important equipment like this.

"It's a £1 billion investment, 90 per cent of the jobs and the work are going to be done here in the UK. That's good for the economy, it's good for our armed forces but only possible because we made difficult decisions."

Mr Cameron added: "This shows the concrete benefits of the fundamental changes we have introduced to modernise our Armed Forces and to bring the future defence budget back to balance.

"It means we are now able to ensure our soldiers have greater flexibility and firepower with these upgraded armoured vehicles.

"Warrior has performed outstandingly well in Bosnia, Kosovo, Iraq and now Afghanistan, and this programme will enable it to remain effective to the 2040s.”

The upgraded Warriors are expected to enter service by 2020, with the first deliveries beginning in 2018.

The vehicles – which carry a crew of three and up to seven passengers – have been in service with the Army since 1989, during operations in Kuwait, Bosnia, Kosovo, Iraq, and Afghanistan.

More than 20 soldiers have been killed travelling in Warriors in Iraq and Afghanistan, raising fears that the Taliban had succeeded in developing improvised explosive devices (IEDs) to exploit weaknesses in their undersides.

Four soldiers died in Iraq in April 2007 when a bomb ripped through the belly of their Warrior in Basra. Second Lieutenant Joanna Dyer, 24, who was at Sandhurst military academy with Prince William, died in the blast.

At the inquest into their deaths, Wiltshire coroner David Masters said soldiers serving in Iraq and Afghanistan needed better protection and that he would be pressurising then Armed Forces minister Bob Ainsworth to improve Warrior’s armour.

New belly armour has since been added to the Warriors deployed in Afghanistan, but the constant delays in updating its weaponry have left it “vulnerable”, experts claim.

The current slow-firing, non-stabilised canon means the vehicle must come to a halt before it can be accurately fired.

Christopher Foss, editor of Jane's Armour and Artillery, said: “This upgrade is long overdue – there have been three upgrades to the Warrior that have been cancelled in the last 10 years or more.

“It’s a very good platform but it’s getting a bit long in the tooth now and desperately needed this package of upgrades.

“Hopefully this is the first step in improving the Army’s ground manoeuvre vehicles, which have been underfunded for the past 20 years.”

The unveiling of the project was one of the first major announcements by new Defence Secretary Philip Hammond, since he replaced Dr Liam Fox following his resignation over the Adam Werritty scandal.

Mr Hammond said: "The upgraded Warriors will give commanders and their soldiers greater flexibility and firepower.

"Not only is this fantastic news for the Army, it also represents a great boost to British industry – sustaining jobs, skills and capability within the UK's armoured vehicle sector."

The head of the Army, Chief of General Staff General Sir Peter Wall, added: "This announcement is extremely welcome.

"Warrior will continue to be at the heart of our combat capability for at least another 25 years with state-of-the-art firepower and electronics.

"Wherever the Army deploys, our infantry will depend on its superior protection, mobility and lethality.”

The deal with Lockheed Martin comes after BAE Systems, Britain’s largest defence company – which last month announced 3,000 job cuts in the UK – was knocked out of the running for the contract in February.